TEMASEK HOLDINGS

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TEMASEK HOLDINGS:

(CEO replacement): 6.

Mr Lim Biow Chuan asked the Minister for Finance (a) whether he will explain the steps taken by Temasek Holdings to find a replacement CEO; and (b) whether any Singaporeans were considered for the position.

The Senior Minister of State for Finance (Mrs Lim Hwee Hua) (for the Minister for Finance): Sir, Mr Lim Biow Chuan asked about the steps taken by Temasek to find a replacement CEO and whether Singaporeans were considered for the position.

Since early 2005 and on an annual basis, a subcommittee of the Temasek Board of Directors has worked with the incumbent CEO to review potential successor candidates. It is a dynamic list – each year, new names may be added while other names may be taken out. The list includes candidates from within the company as well as those from outside Temasek, both in Singapore and abroad. They include Singaporeans, permanent residents and foreigners.

The candidates are grouped according to the time-line for possible CEO succession. This includes those who can be considered for immediate succession should anything unexpected happen to the incumbent CEO. Others are grouped into categories for succession over short, medium, and longer-term horizons. This

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approach has enabled Temasek to identify excellent future CEO candidates even in their 30s, and nurture them as part of the pipeline of future successors. The process is consistent with the long-term perspective that Temasek takes on as a professional institution.

The current candidates for future CEO succession within Temasek, mostly in their late 30s or 40s, include Singaporeans as well as foreigners. Temasek looks for candidates who have the commitment and capacity to be with the organisation for the longer term and with a long-term perspective in managing and building the institution.

Mr Charles Goodyear was identified and approached by the Temasek Board as a potential CEO candidate in 2007. Once he agreed to be considered as a CEO candidate, Mr Goodyear was interviewed by the Board members, individually and as a group. The Board engaged with him for over a year before it finalised its decision. Temasek picked Mr Goodyear as its next CEO because its Board assessed that he was the best person for the job, based on merit.

The Temasek Board's selection process was not limited to finding the best investment professional. Indeed, Temasek has internal candidates with very strong investment expertise and track records. However, the Board felt that Mr Goodyear's strong track record in managing a global enterprise and his experience in running an operating company would complement and add to the depth and capacity of their senior leadership team. The Board was also satisfied that he shares Temasek's values and is committed to building long-term sustainable value.

As Temasek is a Fifth-Schedule Company under the Singapore Constitu

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tion, Mr Goodyear's appointment both as a Board member and as a CEO successor was subject to the concurrence of the President. Cabinet first discussed the Temasek Board's nomination of Mr Goodyear. Cabinet decided that the Government should have no objection to Temasek appointing a foreigner as CEO if he was assessed by the Board to be suitable and the best candidate available. Cabinet, therefore, endorsed Mr Goodyear's nomination, but also reaffirmed the need for the Board of Temasek to remain in the effective control of Singaporeans.

Temasek Board's recommendation was then put to the President for approval, and the President met Mr Goodyear before giving his concurrence.

Mr Lim Biow Chuan (Marine Parade): Sir, Temasek is a very strategic asset of Singapore and there has been some disquiet about Temasek employing a foreigner as its CEO. Singapore has also seen some high profile foreign CEOs with very strong credentials at DBS and NOL leave the company after a short tenure of between 18 months and two years.

Considering that most of Temasek's investments are for the long term, may I ask the Minister whether the Government can assure that a foreign CEO has long-term vision for Singapore and how would Temask ensure that a foreign CEO will not try to make the P&L of Temasek look good in the short term so he can receive hefty or suitable rewards for this short-term profit?

Next, it was also previously reported that Mr Dhanabalan had said in 2002 that the job of a CEO of Temasek was not for foreigners because it is highly sensitive and security is involved. Is there any change to that position?

Mrs Lim Hwee Hua: Sir, it is important for the CEO of Temasek to be aligned

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with its long-term orientation regardless of the nationality of the CEO, in other words, whether he or she is a Singaporean or a non-Singaporean. I should add that Mr Charles Goodyear has been appointed as a permanent employee, similar to the arrangement for the incumbent CEO. So, in other words, he is not a contract employee.

The Temasek Board has decided on the choice of Mr Goodyear as the next CEO based purely on merit, as I have elaborated in my reply. And the key factor, as explained, is really an assessment that he shares the values of Temasek and its position as a long-term investor committed to delivering sustainable returns.

Let me just refer very quickly to an elaboration in the Temasek Review which explains how this long-term alignment is translated into terms of compensation. In the Temasek Review 2008, it is stated that Temasek adopts a well-balanced compensation framework which "puts the institution before the individual, emphasises long term over short term, and aligns employee and shareholder interests". A major part of the employee incentives is funded by Temasek's wealth-added or excess returns above the risk adjusted hurdles. Distribution of this incentive is in accordance with the contributions made by the individuals and a significant part of the incentives awarded to individuals is actually deferred to future years and only payable or vested when the wealth-creation is sustained. The deferred bonus portion is subject to deductions if the wealth added is not sustained. This framework of sharing rewards and risks affirms the principle of alignment with sustainable value creation.

As regards the comment that Mr Dhanabalan has reportedly made regarding the need for the CEO to be a Singaporean, the situation then was completely different. Temasek, at that point, was

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undertaking a re-orientation and definition of its strategy which includes the definition of the Temasek Charter. That is strictly a strategic piece of document which articulates its position with the shareholder as well as with the whole of Singapore. Therefore, the circumstances have changed. Temasek today is completely different from the Temasek at the time when Mr Dhanabalan is purported to have made that comment.